The markets started the third quarter on the upside Wednesday, aided by improving manufacturing data and an uptick in pending home sales. The Dow Jones Industrial Average added 57.06, or 0.68% to 8,504.06, while the S&P 500 gained 4.01, or 0.44%, to 923.33. The Nasdaq was up 10.68, or 0.58%, to 1,845.72.
Tim Seymour said on CNBC's "Fast Money" TV show, said the economic data was "fantastic." He said China's latest PMI numbers show that economy is growing, the Institute of Supply Management numbers were the best in 10 months and the latest pending home sales data were impressive. "I thought we had a lot to rally on," he said. Guy Adami said he understood what Seymour was saying about the data, but he couldn't hide his distrust of the market, especially after it gave away the gains from the early part of the trading session. Joe Terranova said energy is the problem right now. He said the rally in the equities markets is over if oil can't sustain itself above $70 a barrel. Pete Najarian said program buying took over during a light trading day, with the market showing no conviction. He disagreed with Terranova about the $70 threshold for oil, saying oil would have to drop to $40 a barrel to be a real problem for the economy. Seymour said the market could suffer as it awaits the earnings reports from the financials and some evidence of leadership. Despite upgrades in some technology stocks today, Adami said some stocks such as Intel ( INTC) were ahead of themselves.
Terranova said he was worried about the lack of any relief in the rate of decline of job losses. Seymour disagreed, saying job losses are a lagging indicator and don't reflect what is happening in the economy. Turning to consumer stocks, Adami said Yum! Brands ( YUM) continues to do well but is a China story. Seymour and Najarian said consumer staple names have been attractive to investors, providing one of the few places for high dividend yields. Commenting on one of the most unusual trades today, Adami said AIG ( AIG) put a big "loser's" tag on the stock after the company announced a 20-1 reverse split today. Seymour said the move is a "sign of weakness" that indicates the stock is worth less. Joe Duran, CEO of United Capital Partners, came on the show to talk about trading strategies for the new quarter. He said investors need to sell their winners and rebalance their portfolios after moves of more than 20%. He also said investors need to correctly identify undervalued assets. Duran said he got out of basic materials, commodities and emerging markets three weeks ago simply because the move in those areas was so robust that it got ahead of itself. He has since rotated to consumer products, technology and health care. Duran sees a 10% correction in the works that will require investors to rebalance their portfolios. On the eve of the Friday's jobs report, Mike Darda, chief economist for MKM Partners, said the jobs number will not play a factor in the equities market in the third quarter. Still, he's expecting about 450,000 job losses compared to a consensus forecast of 365,000 job losses.
He said he's bullish on the stock market and advised buying on dips. He expects a recovery starting in the third quarter and a "robust" economy in 2010. Lee said China's stock markets are at their highest levels in more than a year. Seymour cited several reasons for the rally, including a "significant IPO issuance in Shanghai," some real estate plays that are starting to rally and solar plays. Contrary to perception, he said it's the consumer names, not the commodity names, that have been attracting interest. But Najarian disagreed, saying commodities is a still a big story in China. As evidence, he said China's coal imports are up 73% in the first five months of the year. He said he likes Peabody ( BTU) as a trade here. He said the company is expecting exploding export growth to Asia and the Pacific. Moving on to Obama's healthcare reform plans, David Windley, managing director of Jefferies, said investors need to take into consideration the continued shift toward generics as part of the equation. He said the best way to play lower cost drugs is through Teva Pharmaceuticals ( TEVA). According to Windley, the other major shift sees big pharma seeking a cheaping way to produce drugs through outsourcing. On this point, he said he would go with drug development companies such as Paraexel ( PRXL) and Icon ( ICLR). For the "stock of the day," Pete Najarian picked Novo Nordisk AS ( NOV)a leading company in diabetes care that is based in Denmark. Continuing this week's segment on all-American stocks, Lee mentioned Bank of New York Mellon, which has $1 trillion under management and was one of the first banks to pay back its TARP money. Adami said the bank, which has a great asset management operation, is a little rich here and suggested buying it on a pullback.
In the final trades, Seymour liked Nucor ( NUE); Adami was for Yum! Brands; Terranova was for natural gas; and Najarian liked Elan ( ELN) as a speculative pick. "Check out "'Fast Money' Portfolios of the Week" on Stockpickr every Thursday.